mrp and erp

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MRP AND ERPChapter 12

MIS 373: Basic Operations Management

Additional content from Jeff Heyl and L. Beril Toktay

MIS 373: Basic Operations Management 2

LEARNING OBJECTIVES

• After this lecture, students will be able to 1. Describe the inputs, outputs, and nature of MRP processing.2. Explain bill of materials3. Explain time-phased product structure4. Describe differences between MRP and ERP


MRP

• Material requirements planning (MRP):• A computer-based information system that translates

master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

• The MRP is designed to answer three questions:1. What is needed?2. How much is needed?3. When is it needed?


MRP OVERVIEW

Composition of a finished products

How much and when finished product is desired

How much inventory is on hand or on order


MRP INPUTS

• MRP Inputs• Master schedule

• How much and when finished product is desired

• Bill of Materials (BOM)• Composition of a finished products

• Inventory Records• How much inventory is on hand or on order


MRP INPUTS:MASTER SCHEDULE

• Master schedule: • States:

• Which end items are to be produced

• When these are needed

• In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories).

Weekly Quantity

Item X 11 12 13 14 15 16 17 18

Quantity 100 150







Item X

Weekly Quantity

Item X 11 12 13 14 15 16 17 18

Quantity 100 150


Weekly Quantity

Item X 11 12 13 14 15 16 17 18

Quantity 100 150






Item X

at beginning of week 14 andat beginning of week 18


Weekly Quantity

Item X 11 12 13 14 15 16 17 18

Quantity 100 150






Item X

at beginning of week 14 andat beginning of week 18

100 at beginning of week 14150 at beginning of week 18


CUMULATIVE LEAD TIME

The master schedule should cover a period that is at least equivalent to the cumulative lead time

– Cumulative lead time » The sum of the lead times that sequential phases of a process

require, from ordering of parts or raw materials to completion of final assembly.

CLT = 9 weeks


CUMULATIVE LEAD TIME

• Following the previous example, if CLT=9• When should we start work for the demand on the week 14?• When should we start work for the demand on the week 18?

Weekly Quantity

Item X 11 12 13 14 15 16 17 18

Quantity 100 150


MRP INPUTS: BILL OF MATERIALS

• Bill of Materials (BOM)• A listing of all of the assemblies, subassemblies, parts,

and raw materials needed to produce one unit of a product

• Product structure tree• A visual depiction of the requirements in a bill of materials, where

all components are listed by levels


ASSEMBLY DIAGRAM AND PRODUCT STRUCTURE TREE

Level 0 = end itemparent

componentparent

component

Level 1

Level 2Amount needed for assembly at the next higher level only


LOW-LEVEL CODING

• Low-level coding• Restructuring the bill of materials so that multiple occurrences of a

component all coincide with the lowest level at which the component occurs

• Example: 1 X requires: 2 B, 1 C, 6 D, 28 E, and 2 F

Level 3

Level 2

Level 1

Level 0 X

B(2)

D(3)

E(4)

E

C

E(2) F(2)

B: 2 x 1 = 2

D: 3 x 2 = 6E: 1 x 2 = 2

E: 4 x 6 = 24

C: 1 x 1 = 1

E: 2 x 1 = 2F: 2 x 1 = 2

X: 1


LOW-LEVEL CODING: 1 X

Level 3

Level 2

Level 1

Level 0 X

B(2)

D(3)

E(4)

E

C

E(2) F(2)

• 1 X requires:B: 2C: 1D: 6E: 2+24+2=28F: 2

B: 2 x 1 = 2

D: 3 x 2 = 6E: 1 x 2 = 2

E: 4 x 6 = 24

C: 1 x 1 = 1

E: 2 x 1 = 2F: 2 x 1 = 2

X: 1


LOW-LEVEL CODING: 10 XWITH ON HAND INVENTORY

Level 3

Level 2

Level 1

Level 0 X

B(2)

D(3)

E(4)

E

C

E(2) F(2)

• 1 X requires:B: 2C: 1D: 6E: 28F: 2

10 X require:B: 2x10-4=16C: 1x10-10=0D: 6x10-8=52E: 28x10-60=220F: 2x10-0=20

• On hand inventory

B: 4C: 10D: 8E: 60F: 0

Does not consider item hierarchy!


LOW-LEVEL CODING: 10 XWITH ON HAND INVENTORY

Level 3

Level 2

Level 1

Level 0 X

B(2)

D(3)

E(4)

E

C

E(2) F(2)

B: 2 x 10 - 4 = 16

D: 3 x 16 – 8=40

E: 1 x 16 = 16

E: 4 x 40 – 60=100

C: 1 x 10 -10=0

E: 2 x 0 = 0

F: 2 x 0 = 0

• 10X require:B: 16C: 0D: 40E: 100+16+0=116F: 0

X: 10

“Low-level coding”

• On hand inventory

B: 4C: 10D: 8E: 60F: 0


MRP PROCESSING

• MRP processing takes the end item requirements specified by the master schedule and “explodes” them into time-phased requirements for assemblies, parts, and raw materials offset by lead times

Final assembly lead-time

Part E fabrication lead-time

Material F delivery

lead-time

Sub assembly lead-time


EXAMPLE: TIME-PHASED PRODUCT STRUCTURE

• An example BOM The respective lead time

Parts / Product

Process Lead Time

A 10B 15C 10D 15E 10

Question: When do we start

producing/ordering each part?

A

B(2) C(1)

D(3) E(3) D(1)


Purchase

Assembly


• Let’s assume that we need 50 units of A…

• Based on the BOM, we will need• Level 1: 100 units of B

• Level 2: 300 units of D• Level 1: 50 units of C

• Level 2: 50 units of D• Level 2: 150 units of E

• Putting together:• 100 B, 50 C, 350D, 150 E

A

B(2) C(1)

D(3) E(3) D(1)



• Let’s assume that we need 50 units of A…

Parts-ProductsABCDE

Delivery date for

final product

5 days



• 50 units of A

Parts-ProductsABCDE

Start assembly

for 50 units of A

5 days

Parts / Product

Process Lead Time

A 10

B 15

C 10

D 15

E 10

A

B(2) C(1)

D(3) E(3) D(1)



• 50 units of A

Parts-ProductsABCDE

Start assembly for 100

units of B

5 days

Parts / Product

Process Lead Time

A 10

B 15

C 10

D 15

E 10

A

B(2) C(1)

D(3) E(3) D(1)



• 50 units of A

Parts-ProductsABCDE

Start assembly

for 50 units of C

5 days

Parts / Product

Process Lead Time

A 10

B 15

C 10

D 15

E 10

A

B(2) C(1)

D(3) E(3) D(1)



• 50 units of A

Parts-ProductsABCDE

Order 300 units of D

for B’s process

5 days

Parts / Product

Process Lead Time

A 10

B 15

C 10

D 15

E 10

A

B(2) C(1)

D(3) E(3) D(1)



• 50 units of A

Parts-ProductsABCDE

Order 50 units of D

for C’s assembly

5 days

Parts / Product

Process Lead Time

A 10

B 15

C 10

D 15

E 10

A

B(2) C(1)

D(3) E(3) D(1)



• 50 units of A

Parts-ProductsABCDE

Order 150 units of E

for C’s assembly

5 days

Parts / Product

Process Lead Time

A 10

B 15

C 10

D 15

E 10

A

B(2) C(1)

D(3) E(3) D(1)


MRP OUTPUTS: PRIMARY

• Primary Outputs• Planned orders

• A schedule indicating the amount and timing of future orders

• Order releases• Authorizing the execution of planned orders

• Changes• Revisions of the dates or quantities, or the cancellation

of orders


MRP OUTPUTS: SECONDARY

Secondary OutputsPerformance-control reports

Evaluation of system operation, including deviations from plans and cost information• e.g., missed deliveries and stockouts

Planning reportsData useful for assessing future material requirements

• e.g., purchase commitments

Exception reportsData on any major discrepancies encountered

• E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts


ENTERPRISE RESOURCE PLANNING (ERP)

• Enterprise Resource Planning (ERP) • ERP was the next step in an evolution that began with MRP • ERP typically has an MRP core• Many organizations use a functional structure. Information tends to

flow freely within each function but less so between functions.• ERP represents an expanded effort to integrate standardized

record keeping that will permit information sharing among different areas of an organization in order to manage the system more effectively

• A system to capture and make data available in real-time to decision makers throughout the organization.

• ERP systems are composed of a collection of integrated modules


ERP SOFTWARE MODULESModule Brief DescriptionAccounting/Finance A central component of most ERP systems. It provides a range of financial reports,

including general ledger, accounts payable, accounts receivable, payroll, income statements, ad balance sheets

Marketing Supports lead generation, target marketing, direct mail, and salesHuman Resources Maintains a complete data base of employee information such as date of hire, salary,

contact information, performance evaluations, and other pertinent informationPurchasing Facilitates vendor selection, price negotiation, making purchasing decisions, and bill

paymentProduction Planning Integrates information on forecasts, orders, production capacity, on-hand inventory

quantities, bills of material, work in process, schedules, and production lead timesInventory Management Identifies inventory requirements, inventory availability, replenishment rules, and

inventory trackingDistribution Contains information on third-party shippers, shipping and delivery schedules, delivery

trackingSales Information on orders, invoices, order tracking, and shipping

Supply Chain Management

Facilitates supplier and customer management, supply chain visibility, and event management

FOCUSED READING• Enterprise Resource Planning (ERP)

1. Enterprise resource planning (ERP)—A brief history2. 13 Common ERP Mistakes and How to Avoid Making Them3. ERP and Business Process Re-engineering

• ERP: The Business Process Re-engineering Dilemma• To BPR, or not to BPR, that is the question

4. Cloud ERP• What Is Cloud ERP, and How Is It Different from Traditional Solutions?• Benefits of Cloud ERP Software

• Instruction:• A group should have 4 persons, each with a different article• Take a few minutes to read the article you have; take notes• Share the key ideas from your reading to your team members

http://www.sciencedirect.com/science/article/pii/S0272696306001355

http://www.sciencedirect.com/science/article/pii/S0272696306001355

http://www.cio.com/article/702989/13_Common_ERP_Mistakes_and_How_to_Avoid_Making_Them

http://www.cio.com/article/702989/13_Common_ERP_Mistakes_and_How_to_Avoid_Making_Them

http://www.lumeniaconsulting.com/blog/john-donagher/erp-business-process-re-engineering-dilemma

http://www.lumeniaconsulting.com/blog/john-donagher/erp-business-process-re-engineering-dilemma

http://www.lumeniaconsulting.com/blog/john-donagher/to-bpr-or-not-to-bpr-question

http://it.toolbox.com/blogs/inside-erp/what-is-cloud-erp-and-how-is-it-different-from-traditional-solutions-61086

http://it.toolbox.com/blogs/inside-erp/what-is-cloud-erp-and-how-is-it-different-from-traditional-solutions-61086

http://www.meritsolutions.com/products/MAXCloud-Benefits-of-Cloud-ERP.html



ERP HISTORY• MRP: focus on cost reporting, materials, manufacturing

• tapes• IBM• 1960~1970

• MRPII: scheduling, procurement• 1980s

• ERP• SAP, Peoplesoft, • 1990• Client-server architecture

ERP COMMON MISTAKES• Poor plan

• Need time to plan and to revise• Revise process

• Not hiring correct people• Experience third party• IT consultants• Referencing• Restrictions, lack of capability• No sufficient training• Underestimation: accurate data, time, resources, training,

• Maintenance strategy

ERP & BUSINESS PROCESS RE-ENGINEERING

• Take place before ERP system selection• Output of BPR ERP• To be process vs. as is process

• Difference ways to do business globally• Process standardization after acquisition• Legacy systems• Make sure the process lead to higher values

CLOUD ERP• Cloud ERP vs. traditional ERP

• Traditional: • Cloud:

• Outsource operation, easy to setup, monthly/annually fee• Minimal initial cost• Automate operation

• cons• Less control, data security, service outage


KEY POINTS

• The usage of components in production of assembled items depends on how many of each component are needed per item, and how many items are to be produced. Hence the term dependent demand.

• MRP is a tool used for dependent-demand components, to assist in making the two basic decisions in inventory management: how much of each component to order, and when to order it.

• ERP is a software-based enterprise-wide system that allows access to production, sales, accounting, warehouse, and supply chain information.

mrp and erp

Documents

order mis

beginning of week

master schedulemaster

master schedule requirements

end items

quantities customer

seasonal inventories

lead times